MANAGING THE RISK OF CELEBRITY SPONSORSHIPS

In a world obsessed with the lifestyles of the rich and famous, big brands are increasingly signing up with famous A-list celebrities and athletes to endorse their products and services. It's a highly effective and popular way to attract attention to a brand and its products through the shared positive associations.

While many such endorsements work very effectively, history has also shown that when a celebrity falls from grace in spectacularly public fashion, it can cause significant reputational damage and have financial repercussions for the sponsoring brand if not managed swiftly and strategically.

"Death, disability and disgrace insurance is a way that sponsoring companies can protect themselves financially when a sponsored celebrity behaves inappropriately and the brand decides to distance their association with them. Additionally, this cover also protects the sponsor if tragedy strikes and the endorser is unable to continue as the face of a campaign either through death or disability," explains Dani Ettridge of Aon South Africa.

But probably the most damaging of these and of greatest concern to sponsors is a public scandal that can destroy a multi-million Rand advertising campaign and hard-earned reputation. With the proliferation of social media, a scandal can erupt in the headlines in rapid and very public fashion, the repercussions of which can linger for months if not years – think of Ben Johnson, Wayne Rooney, Oscar Pistorius, Bill Cosby and Tiger Woods to name a few.

"It's important to note though that disgrace is a very subjective matter, and that certain brands may have a higher tolerance to certain indiscretions than others. For example, Gillette remained on as a sponsor of Tiger Woods after the revelations about a string of extra-marital affairs."But in instances where the actions of a celebrity are in direct opposition to the ethos and values of the sponsoring brand, sponsors have reacted by publicly and swiftly withdrawing their support. In some instances, brands can even derive some positive public sentiment when such action is seen to be taking a stance against an important social issue," adds Dani.

In the US, Procter and Gamble made a decision not to supply NFL players with pink mouth guards during Breast Cancer Awareness month and cancelled their on-field advertising amidst allegations of domestic abuse and the NFL's lack of action on the allegations. Public sentiment was positive towards P&G's swift disapproval of violence against women.

Locally, sponsors of Oscar Pistorius – Nike and Oakley – pulled their advertising and outdoor billboard campaigns featuring the athlete, while M-Net immediately pulled their TV commercials as news of the shooting and killing of Reeva Steenkamp broke.

"The risks for any sponsor associated with this type of negative publicity are significant both reputationally and financially, and can result in the pulling of multi-million Rand advertising and sponsorship contracts. In many instances the sponsor will need to recreate its entire advertising campaign, even the products on shelves if the packaging or merchandise bears their image or endorsement, costing millions in lost production, merchandise and packaging costs, as well as any remedial action required to protect their reputation," explains Dani.

The primary reputational risk is that the inappropriate behavior is seen by the public as a direct reflection of the brand's values and sentiments. This is why such cases demand swift and strategic action on the part of the brand to firstly distance themselves from the unsavoury behavior, but also to publicly make a statement about what their values are and limit further damage by association. Companies are increasingly turning to insurance and risk management to mitigate against these risks and aligning their insurance cover and their contracts with the celebrity endorser accordingly.

Policies are available from various insurance carriers and are structured to cover certain costs, from the removal all advertising material and creating an entirely new campaign, through to the product recall of any items bearing the celebrity's name or image, as well as the recreation of any packaging and merchandising that needs to be removed and replaced. It is also not possible to insure against a drop in sales revenue as a result of the death or disgrace of a celebrity, because it is very challenging to accurately quantify the direct monetary loss associated with an endorsement.

"When contemplating a celebrity endorsement, it's highly advisable for brand owners to consult with a specialist risk advisor who can guide them through the process of assessing all the potential risks. This involves analysing every conceivable "what if" scenario, assessing the financial and reputational ramifications and the costs of any required remedial actions, assessing what risks can be avoided by transferring them contractually to the sponsored individual, which ones should be insured and which ones should be retained.

Demand for death, disability and disgrace cover has increased, driven by recent high profile cases as well as the fact that organisations are becoming more sensitive about managing their reputations in the age of the internet. Properly scoped insurance covers guided by the professional advice and risk mitigation skills of an experienced broker are essential to ensure that when celebrities are caught doing something they probably shouldn't, sponsoring brands can recover and return to normal business operations as soon as possible," concludes Dani